Q1. "Mr and Mrs Smith loved their children so much. And they were very happy."
What does "they" refer to?
Q2. "Mr and Mrs Smith loved their children so much. But they were not happy at all."
What does "they" refer to?
Q3. The point of my question is:
"Does a following pronoun ALWAYS refer to the Subject of the previous sentence?"
"Can't a following pronoun refer to the Object of the previous sentence?"